While doing some research for my recent series[1] of stories about usage based billing (UBB) for internet access in Canada, I came across a particularly thoughtful and compelling critique of UBB written by John Robertson.

Mr. Robertson, who is also known as Potato[2], wrote the UBB critique in response to CRTC Telecom Decision 2011-44[3], Usage-based billing for Gateway Access Services and third-party Internet access services.

With Mr. Robertson’s permission, I am publishing an excerpt from his excellent critique below. The full critique[4] is available over at his blog, Blessed by the Potato[5]. Like me, he has written a series[2] of stories about UBB.

Without further ado, here the excerpt from Mr. Robertson’s critique:

In 2011-44, the CRTC would allow the incumbent providers to charge UBB fees to the independent ISPs, less a 15% discount. This was a seriously flawed decision on multiple counts.

Summary: the decision to levy UBB fees on independent ISPs who lease the last mile connection from the incumbents was bad policy, and many fallacies have been stated in its support. By changing from a cost-plus to a retail-minus basis for regulated reselling, the CRTC has severely impeded competition in a market that is already only marginally competitive, with two players vastly dominating the landscape. The basic retail pricing model of the incumbents will be forced on all providers, removing competition and differentiation. This will have negative consequences for Canadian internet users, innovators, small businesses, and independent ISPs, while enriching the incumbents. The UBB model and rationale is seriously flawed, and the CRTC should not be providing carte blanche to the incumbents to charge whatever they wish. A competitive environment is key to ensuring fair retail pricing for internet access in Canada, and in order to ensure that there is competition, the CRTC must provide for a logical, fair, cost-based set of tariffs for the leasing of the critical last-mile infrastructure by the independent ISPs.

The CRTC should: encourage a fair, competitive environment that encourages the use of the by Canadians. It should also recognize that the independent ISPs are not “white-label” resellers of the incumbents’ retail plans, and thus the retail pricing the incumbents charge should have no bearing on what the wholesale price of GAS is. Regulated wholesale tariffs for the last-mile infrastructure should continue to be priced based on logical, fair, cost-plus measures, and not retail-minus ones. It should be recognized that leasing wholesale GAS lines of a certain bandwidth (GB/s) includes the usage of those lines (GB/mo), and if it does not, then a usage-based fee that is cost-based should be agreed upon (many estimates would put that cost at 1-3 cents/GB). Furthermore, the CRTC should reconsider its policy on the use of economic incentives like UBB for ITMP, as these may lead to perverse incentives that harm the growth of network investment in Canada, where the incumbents make more profit by not investing in and expanding their networks. Instead, a new, fair set of bandwidth management (traffic-shaping) tools should be the fall-back method used for ITMP when the primary goal, investment in network expansion, cannot be carried out.

Below, I will more fully explain why the UBB decision was flawed, how it will negatively impact competition, other issues surrounding the decision, and finally recommendations for the CRTC policy…